How Analytical Approaches Improve CRM: Examples and Metrics
Customer Relationship Management (CRM) is more than just a technology tool — it’s a strategic framework that helps businesses build long-term, profitable relationships with customers. For MBA or management students, understanding CRM is crucial because it links marketing, analytics, and customer engagement into one integrated system.
⤷ Core Components of Effective CRM
To successfully implement CRM, companies must build around seven key components:
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Database of Customer Activity
The foundation of CRM lies in data collection. This database captures transaction history (price, SKU, delivery date), customer interactions (calls, emails, service requests), and segmentation data (age, geography, preferences).
Example: 3Com and Thomson Holidays maintain extensive databases to track and personalize services. On the other hand, companies like Procter & Gamble face challenges due to indirect distribution channels and use creative ways like online contests to collect customer data. -
Analysis of the Database
Data must be analyzed to extract customer insights. Without analysis, raw data cannot drive strategy. -
Targeting Decisions
Companies identify which customers to focus on based on profitability, loyalty, or strategic fit. -
Targeting Tools
Firms employ email marketing, loyalty programs, mobile apps, or personalized campaigns to connect with selected customers. -
Building Relationships
Strategies like loyalty points, customized offers, and proactive customer service build stronger bonds. -
Privacy Issues
Since CRM depends on data, customer privacy must be safeguarded to maintain trust. -
Metrics for Success
Key performance indicators (KPIs) like retention rate, churn rate, LCV, and conversion rate measure CRM effectiveness.
⤷ Analytical Approaches in CRM
CRM analytics allow businesses to move from reactive to proactive customer engagement. Four key methods stand out:
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Traditional Customer Segmentation
Uses cluster analysis and discriminant analysis to group customers with similar behaviors.
Example: Banks may segment customers as "salary account holders," "premium investors," or "loan seekers" to design tailored services. -
1-to-1 Marketing & Lifetime Customer Value (LCV)
- Focuses on individual profitability instead of mass groups.
- LCV = (future product margins – customer acquisition/servicing cost).
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Helps companies decide whether to invest in retaining a customer or even "fire" unprofitable ones.
Example: Amazon uses LCV to decide which customers get special discounts or faster delivery.
-
Market Basket Analysis
Identifies products purchased together to promote cross-selling.
Example: A supermarket may bundle chips with soft drinks or show "Frequently Bought Together" items online. -
Clickstream Analysis
Tracks website browsing patterns to improve conversion rates.
Example: Netflix and e-commerce sites personalize recommendations based on click history.
⤷ CRM Components vs Analytical Approaches
| Aspect | Core CRM Components | Analytical Approaches |
|---|---|---|
| Focus | Structure & process of CRM | Insights & predictive analysis |
| Key Example | Customer database, targeting tools | Segmentation, LCV, basket analysis |
| Output | Customer engagement framework | Profitability insights, buying patterns |
| Benefit | Builds long-term relationships | Helps identify profitable customers & strategies |
⤷ Why CRM ?
Understanding CRM equips future managers to:
- Design customer-centric strategies
- Use data analytics for decision-making
- Balance customer privacy with personalization
- Measure profitability through LCV and retention metrics
Customer Relationship Management components, CRM analytical approaches, Lifetime Customer Value (LCV) examples, Market basket analysis in CRM, CRM metrics and segmentation strategies
